JustCare

Tag: Reference pricing

  • Democratic Presidential candidates debate health care reform

    Democratic Presidential candidates debate health care reform

    One of the biggest differences among the Democratic presidential candidates is where they stand on health care reform. During the debates last week, we saw that Elizabeth Warren and Bernie Sanders are big proponents of Medicare for All; and, Kamala Harris understands the value of Medicare for All and the costs of relying on commercial health insurance to cover our health care. Most of the other candidates mistakenly seem to believe we can lower health care costs sufficiently through a “public option,” sometimes called Medicare for some.

    Amy Klobuchar, Michael Bennet, Joe Biden, and Beto O’Rourke are not calling for Medicare for All, even though it guarantees people coverage with full choice of doctors and hospitals and no out-of-pocket costs. They say they want to give people the choice of Medicare, because it offers more choice and let’s people keep the coverage they have if they’d like.

    These candidates want to allow people to choose costly private health plans with restricted networks of doctors and hospitals. What they don’t seem to appreciate is that public option plans (Medicare for some) may sound good, but they do not drive down health care costs sufficiently and keep health care unaffordable for most people.

    Virtually every American wants access to private health care from private doctors and private hospitals, which is exactly what Medicare for All offers.  Do people really care whether public or private insurance pays their bills? Do they understand that only if public insurance pays their bills will their costs come down?

    Mayor Bill deBlasio of New York City, another supporter of Medicare for All, challenged O’Rourke on his position. “Congressman O’Rourke, private insurance is not working for tens of millions of Americans when you talk about the co-pays, the deductibles, the premiums, the out of pocket expenses. It’s not working.” “How can you defend a system that’s not working?” O’Rourke had no good answer.

    Former Congressman John Delaney did not appear to appreciate the twisted logic of his argument against Medicare for All, which he based on statements from hospital CEOs. Of course, they oppose Medicare for All. Their self-interest is in ensuring they receive as high rates as possible.

    The majority of candidates demonized pharmaceutical companies and said they want lower drug prices. But, you need to read between the lines. Senator Klobuchar wants Medicare drug price negotiation, which does nothing to help the 170 million people with job-based coverage. She appears to want to allow working people to import drugs from abroad, which is at best a short-term solution.

    In sharp contrast, Senator Cory Booker is sponsoring Senator Sanders’ bill calling for international reference pricing for drugs, essentially, paying the average of what other wealthy countries pay. That proposal should cut drug prices for everyone in half.  Senator Warren has her own bill to bring down drug prices for everyone.

    If you support Medicare for all, please sign this petition.

    Here’s more from Just Care:

  • Majority of Americans do not trust pharmaceutical companies to price their drugs fairly

    Majority of Americans do not trust pharmaceutical companies to price their drugs fairly

    A new Kaiser Family Foundation poll reveals how difficult it is for people taking prescription drugs to afford their medications. And, a majority of Democrats and Republicans alike support a policy that would bring down prescription drugs prices to the same level as prices in other wealthy countries, international reference pricing. They believe that prescription drug costs are unreasonable and do not trust pharmaceutical companies to price their drugs fairly

    International reference pricing would cut prescription drug costs in the United States in half. It would make it less difficult for people who need costly prescriptions to afford them. Congressman Ro Khanna and Senator Bernie Sanders recently introduced an international reference pricing bill. The Medicare for All Act of 2019, just introduced by Representative Pramila Jayapal and 107 co-sponsors would also bring down drug prices significantly and cover the full cost of everyone’s medications.

    Today, almost a quarter of Americans, including 23 percent of older adults, find it difficult to pay for their prescription drugs. And, one in ten Americans, including older adults, find it very difficult.  Nearly 60 percent of people needing prescription drugs that cost them more than $100 a month struggle to pay for their medicines.  More than one in three people with annual incomes under $40,000 also have difficulty paying for their medicines.

    Overall, nearly three in ten people say they do not take their prescriptions as intended because they cost too much. Of those, 8 percent report declining health as a result of failing to take their medicines as prescribed.

    If you want Congress to rein in drug prices, please sign this petition.

    Here’s more from Just Care:

  • Sanders drug bill makes it easier for patients to afford their medicines

    Sanders drug bill makes it easier for patients to afford their medicines

    At my pediatric clinic, I often hear how my patients and their families struggle at pharmacies, forced to choose between paying for their prescriptions or their groceries.

    They are not alone: More than one in five patients cannot afford the medications prescribed by their health-care providers. This is even worse for Black and Latino families and seniors on fixed incomes, who often have even fewer dollars to stretch for prescriptions.

    Late last month, Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA) announced legislation called the Prescription Drug Price Relief Act, which intends to stop price gouging by allowing the federal government to approve cheaper versions of generic medications, thus stripping pharmaceutical corporations that refuse to lower prices of their monopolies.

    To show you how this policy would work, let’s use Advair as an example. As a pediatrician, I frequently prescribe this inhaler for my asthmatic patients. Under the Prescription Drug Price Relief Act, the Secretary of the Department of Health and Human Services (HHS) would establish a process to first compare the United States’ excessively priced brand-name drugs with the prices of those same drugs in five wealthy countries: France, Germany, the United Kingdom, Japan, and Canada. In 2015, the median cost—or middle price—for a month’s supply of Advair in these five countries was $46.99. In the good ol’ US of A, which lacks the regulations that other countries use to keep drug prices down, it cost $154.80, and that’s after discounts. This domestic price-gouging by the GlaxoSmithKline corporation is literally making it harder for my young patients to breathe.

    Based on this price information, the Prescription Drug Price Relief Act would dictate to GlaxoSmithKline that the maximum price they could charge would be $46.99, the median in the other wealthy countries. If GSK refused to lower the price, then the U.S. government would issue competitive licenses to any company that wanted to produce a generic version of Advair and sell it at or below $46.99.

    Competitive licensing, sometimes called compulsory licensing, has been used around the world for decades and are approved under U.S. trade law in order to maintain access to needed medications when high prices are restricting that access. What this means is that the legislation would put patents, not patients, at risk. If a drug company tried to restrict access, another company could produce a generic version.

    Importantly, the international reference price is not the only way a price could be termed excessive. The Prescription Drug Price Relief Act would allow any person in this country to lodge a complaint with an office within HHS that a drug price is excessive. Then by using multiple criteria—including but not restricted to the international reference price—HHS would deem if the drug is excessively priced.

    The government would also maintain a publicly available database listing brand-name drugs, their prices in the United States, and how those prices compare to other countries. Every big pharmaceutical corporation would be required to report to the HHS about domestic and international pricing for the brand-name drugs they manufacture. Failure to report would result in financial penalties to Big Pharma, and the money would go to competitive research grant programs at the National Institutes of Health, who already do nearly all the research on new drugs and devices.

    Many public health experts and consumer advocates anticipate that under the Prescription Drug Price Relief Act, a big pharmaceutical corporation like GlaxoSmithKline would opt to drop the price of drugs like Advair instead of losing their patents and sales to a generic drug company.

    Getting prescriptions filled should not be another challenge for my patients and their families who are already struggling with asthma, diabetes, depression, cancer, and many other illnesses. The Prescription Drug Price Relief Act would provide some overdue peace of mind because it puts patients before profits. Even if this legislation doesn’t pass in 2019, it sets a bold marker on what transformative legislation needs to look like. Policies rooted in health justice should lower everyone’s drug prices and never put people’s access to medicine at risk. Instead, smart policies put a drug corporation’s patent at risk.

    It is up to us, the ordinary people struggling in an unjust health system, to put pressure on all of our elected officials to pass policies like the Prescription Drug Price Relief Act. Illness and disease do not care if you are a Republican or Democrat. All of us have a human right to health care and accessible prescriptions regardless of what we look like, where we live, or how we vote. Together, we can push legislators to put patients before politics and profits.

    This article was originally published by Rewire.News.

    Here’s more from Just Care:

  • What Trump will do about Part B drug prices

    What Trump will do about Part B drug prices

    A new report by ASPE (Assistant Secretary for Evaluation and Planning), a research arm of the US Department of Health and Human Services, confirms that US drug prices for some of the physician-administered drugs covered under Medicare Part B are almost double the prices in other wealthy countries. To date, there is no bill in Congress to do anything about it. And, there is no evidence that President Trump will do anything meaningful about these high prices in his executive capacity, notwithstanding his claims to the contrary.

    The ASPE report explores some of the drivers of high physician-administered (non-retail) drug spending under Part B. Non-retail drug spending for each Medicare enrollee increased 7 percent a year in the five years between 2006 and 2011 and 11 percent a year in the five years between 2011 and 2016. One driver of high non-retail drug spending is that physicians have a financial incentive to administer costlier drugs, as they earn 6 percent of the cost of the drugs they administer.

    Price is another driver of high drug spending. The researchers find that Medicare pays on average 1.8 times more for these non-retail drugs than peer countries. Medicare does not use a formulary as a tool to limit coverage and rein in the price of non-retail drugs. Other countries often rely on a formulary to keep their drug spending in check.

    ASPE compared drug prices for 27 non-retail drugs on which Medicare spends the most. And, it looked at their prices in 17 countries, including the US.

    President Trump claims that he wants to bring these Medicare Part B drug prices down to a level similar to what peer countries pay, sometimes called international reference pricing. If he actually were to do so, it could be a small step forward. But, his proposal leaves one wondering why he is not addressing drug prices under the Part D prescription drug benefit, where drug spending is far higher.

    Moreover, there is no reason to believe Part B drug prices will come down under Trump’s proposed plan, given that he has made all kinds of claims about reining in prescription drug prices, none of which have come to pass.

    Even if Trump’s international reference pricing proposal were implemented, it would likely make no difference on overall drug spending, which in 2017 totaled $489 billion, or reduce out-of-pocket costs for people with Medicare. The administration is claiming a savings of $17.2 billion over 5 years, less than $3.5 billion a year. That represents less than 1.0% of the drug industry’s revenues in 2017.

    It is also easy to imagine that pharmaceutical companies will raise their prices higher elsewhere or otherwise game the system to ensure their profits remain intact. Axios reports that investors are not worried that Trump’s plan will have any effect. The Nasdaq’s Biotechnology Index was up 1.75% after Trump’s announcement.

    If you want Congress to rein in drug prices, please sign this petition.

    Here’s more from Just Care:

  • Congressman Doggett takes lead on Medicare drug price negotiation bill

    Congressman Doggett takes lead on Medicare drug price negotiation bill

    Congressman Lloyd Doggett of Texas, along with 59 other House Democrats, just introduced a bill that would require Medicare drug price negotiation. Doggett’s bill provides the Secretary of HHS with the countervailing power needed to keep Pharma from gouging people with Medicare. And, if Pharma refuses to sell a prescription drug at a fair price, the bill protects patient access to the drugs, by requiring compulsory licensing.

    Doggett’s bill represents the first big Congressional initiative to rein in drug prices. It strikes the “noninterference clause” from the law that enacted Medicare Part D prescription drug coverage. This clause prevents HHS from negotiating Part D drug prices at the moment. Rather, Doggett’s bill requires the Secretary of HHS to negotiate drug prices. And, it ensures that Pharma cannot keep drugs off the market if it does not like the price HHS is willing to pay.

    According to Steve Knievel of Public Citizen, “What makes this bill unique relative to other Medicare Part D price negotiation bills is that it includes a novel fallback mechanism to allow for competition when negotiations with a drug manufacturer fail to arrive at an appropriate price.  It puts the drug company’s patent monopoly at risk.”

    In brief, if Pharma and HHS cannot agree on an appropriate price for a drug, the Secretary of HHS would be obligated to issue a “competitive license” to a generic drugmaker, resulting in generic competition of the drug. HHS would license the use of the patent, clinical trial data and any other rights needed by a generic drugmaker to make the drug. Whether a drug price is appropriate would be based, among other things, on comparative effectiveness research, the cost of covering the drug, the burden on patients who need the drug.

    The prescription drug’s patent holder would receive a royalty, which would be calculated based on a variety of factors, including the cost of research and development of the drug and the drug’s benefits.

    Public Citizen believes that this bill gives the Secretary of HHS the needed leverage to negotiate a reasonable drug price, eviscerating a drugmaker’s patent monopoly, where appropriate, and protecting patients. And, recognizing that it may take a little time for the generic drugmaker to produce the drug, during that period, the Secretary is authorized to set the price of the drug at the international reference price, its average price in other wealthy countries.

    If the pharmaceutical company will not sell the drug to people with Medicare at the average price it sells it to the Germans, the Japanese and other wealthy countries, the generic drugmaker would have a license to sell the drug to all federal programs, not only Medicare Part D.

    This bill is a huge step forward, though it only covers the 18 percent of people in the US with Medicare. Ideally, it would offer prescription drug price protection to everyone in the US. It could do so easily if it also gave everyone in the US Medicare exclusively for the purpose of benefiting from HHS’ negotiated prices. Without that benefit, it goes without saying that Pharma will attempt to use its monopoly pricing power to raise prescription drug prices for everyone who does not have Medicare. And, that will penalize people not yet on Medicare as well as the businesses that provide them health insurance.

    To ensure access to critical medications for everyone, prescription drug innovation should not be linked to drug prices. Jamie Love at Knowledge Ecology International (KEI), an international expert on drug pricing, explains that “The Democrats also need to understand and endorse the progressive delinking of R&D incentives from drug prices, so that access and innovation are not at odds with each other.”

    If you want Congress to rein in drug prices, please sign this petition.

    Here’s more from Just Care:

  • Amazon plans to sell and distribute prescription drugs

    Amazon plans to sell and distribute prescription drugs

    Amazon appears to be expanding into the retail market in health care with its plan to purchase PillPack, an online pharmacy that is growing quickly. Stat News reports that PillPack sells and distributes prescription drugs to chronically ill people needing multiple medications. It operates in all but one state.

    The question is whether Amazon can build on its enormous platform to take over a big share of the retail prescription drug business. PillPack still has only a small share of the business, with about 40,000 patients. And, some suggest that pharmacy benefit managers, who are gatekeepers of the drugs health insurers cover, may not be inclined to work with Amazon.

    Moreover, some question Amazon’s ability to translate its expertise and success in satisfying people’s on-demand purchasing desires to the sale of drugs to chronically ill patients. How much do these individuals value the “human touch,” which Amazon has never provided; and, how much do they value lower costs? Or, is Amazon prepared and able to deliver these patients a higher level of services than it currently delivers?

    It is still unclear how Amazon will insert itself into the health insurance industry. But, for sure, it can distribute drugs to the one million employees at Amazon, Berkshire Hathaway and JP Morgan.

    And, Amazon’s plan to expand into the sale of prescription drugs is disrupting the pharmacy distribution business and forcing the biggest players to rethink their business strategies. Mergers are in the making. It appears that Amazon is in some part responsible for CVS Health’s interest in buying Aetna. And, Cigna is partnering with Express Scripts, one of the largest Pharmacy Benefit Managers.

    Time will tell whether Amazon will succeed in the prescription drug space. It certainly has the resources to make a strong effort.

    Of course, in the best of all possible worlds, Congress will step in and negotiate prescription drug prices across the board through international reference pricing–setting prices at the average of what the Germans, the Japanese and other peer countries pay–the most practical and feasible way to cut drug prices in half and save more than $200 billion annually in prescription drug spending.

    If you believe Congress should step in to rein in drug prices, please sign this petition.

    Here’s more from Just Care:

  • How the US should negotiate drug prices 

    How the US should negotiate drug prices 

    The public overwhelmingly supports federal drug price negotiation. But, how should the US negotiate drug prices and why would it? There is a simple benchmark. If Congress stood up for Americans and insisted that we not pay more than people in other wealthy countries for prescription drugs, drug price negotiation easily would cut our drug prices in half.

    While there are dozens of ways the government could negotiate drug prices, one simple, practical and fair way is to base prices in the US on the average of what other wealthy countries pay. That would reduce our drug spending by more than half. And, since drug prices have been rising far faster than inflation for the last two decades, we could use 2000 as a benchmark year and increase prices by CPI for every year thereafter. Prices for drugs new to market after 2000 could be set based on their launch year price.

    To arrive at a benchmark price, Congress could rely on the average prices paid by the seven countries with the largest GDPs and at least half of US per capita income. Of course, in exceptional cases, where the evidence shows that a drug lacks any value, or a drug is new to market, the government should be able to tweak the price.

    What would basing US drug prices on the prices paid by other wealthy countries, sometimes called reference pricing, mean for U.S. taxpayers? It should mean a dramatic cut in government spending on drugs, an estimated 50 percent reduction, or savings of at least $160 billion a year. For example, in 2016, Xtandi cost $129,000 in the US and $39,000 in Japan.

    How would reference pricing affect health care spending for individuals? Reference pricing should lead to a meaningful reduction in health insurance premiums and health care costs. With prescription drugs accounting for more than 10 percent of health care costs, a 50 price reduction should result in a health insurance premium savings of  at least 5 percent. It should also mean a sizable reduction in out-of-pocket costs for people who use a lot of drugs, mitigate the problem of persons discontinuing prescriptions because of high prices, or more generally expanding access.

    How would reference pricing affect access to drugs? Reference pricing should have no effect on access to drugs in the US. Today, the US accounts for more than 45 percent of the world’s pharmaceutical market. As a result, the US holds significant leverage over the pharmaceutical industry. Pharmaceutical corporations would be giving up a large chunk of their revenue if they opted out of making their drugs available in the US.

    How would reference pricing affect research and development of new drugs? Today American taxpayers invest about $37 billion in drug research and development through the NIH, and pharmaceutical companies generally invest less than 20 percent of their revenues. And, much of that money is not for ground-breaking research but for me-too drugs. Drug companies might decide to conduct less research than they do today or to stop conducting any research. But, the US would have tens of billions more in savings to invest in groundbreaking research and development.

    Notably, says James Love, Knowledge Ecology International’s Director, a drug pricing expert, and a leading proponent of reference pricing, reference pricing is a bi-partisan solution. It was adopted by the bi-partisan Senate Armed Services Committee in 2017.

    Why is reference pricing critical? Anything short of a wholesale resetting of the price of prescription drugs on behalf of everyone in the US so that they are on a level playing field with other wealthy nations undermines people’s access to life-saving and life-improving treatment. It also confers a legal monopoly on the pharmaceutical industry to set prices for brand name and other drugs sky high; it is corporate welfare at its most egregious.

    What’s the downside of reference pricing? Reference pricing will save the federal government tens of billions of dollars and permit the government to invest more money on research on critical drugs and ensure a robust pipeline of new life-saving medicines. The US government can ensure vital research is ongoing and prioritize need. Moreover, reference pricing in the US should help to drive down drug prices around the globe. While Pharma will threaten to raise prices abroad in response to a move to reference price in the US, it is already squeezing foreign governments hard.  It should not succeed.

    Pharma will always threaten to raise prices. And, so long as pharmaceutical companies can raise prices they will. Moreover, so long as they can sell drugs that people do not need or that are more expensive and less effective than other drugs on the market, they will. Congress should put an end to all these practices and protect Americans.

    Congress just handed Pharma $68 billion in tax cuts, and we see that this financial gift is going to shareholders and drug executives and not to lowering drug prices. So, let’s try paying what other wealthy countries pay and see its effects before jumping to conclusions. We can begin with reference pricing as a simple method of bringing down drug prices and drug spending speedily. And, we can follow it up with data on the drugs that deliver value, recalibrating prices as we understand better whether a drug offers a measurable benefit or not.

    Reference pricing works at the policy level, the political level and the practical level. More than nine out of ten Americans (92 percent) support federal drug price negotiations. Failing to set fair prices for prescription drugs is literally keeping millions of Americans from accessing needed medicines and a death sentence for some not insignificant number of them.

    ___________________________

    *****Mother’s Day Gift: The Ten Should-Do’s for Your Health, Purse and Peace of Mind, Chapter One of Aging, Schmaging, by Diane Archer. For $5, you can help the people you love and support Just Care.

    Here’s more from Just Care:

  • Paying less for hospital care through reference pricing

    Paying less for hospital care through reference pricing

    Only an an all-payer system with uniform health care rates, will keep us from wildly varying and out-of-control hospital and doctor rates. But, since Congress is not likely to go that route any time soon, CALPERS, the California Public Employees Retirement System, is using reference pricing to pay less for hospital care.

    Last year we reported on the benefits and risks of CALPERS’ initiative to drive down hospital prices. In brief, CALPERS used its leverage to set the amount it would pay for a range of routine services and told its 450,o00 members that they could go to a hospital that priced the service at that rate or lower to keep their out-of-pocket costs down. Or, they could go to any other hospitals and pay the difference between the price CALPERS set and the price that hospital charged plus the copay.

    The price of hip and knee replacements could be more than $100,000, depending on the hospital. CALPERS set its fee for a hip or knee replacement at $30,000 with a 10 percent copay and urged its members to use one of the 41 hospitals that charged this amount. People who chose to go to hospitals with a $50,000 charge would have to pay the $3,000 copay plus $20,000.

    This pricing strategy is called reference pricing. And, Austin Frakt reports for the New York Times that it has not only saved CALPERS millions of dollars, but it has pressured the higher priced hospitals to rethink their charges for a variety of common services.

    Not surprisingly, the CALPERS members favored the lower-priced hospitals to keep their costs down. And, those hospitals saw heir business increase by 28 percent, Moreover, when the hospitals with higher prices saw they were losing business to the lower-cost hospitals with similar quality, they reduced their prices by an average of 20 percent.

    So, why isn’t reference pricing a solution to high-priced hospital care?

    • It only works for elective services, where people have time to shop around. But, 60 percent of hospital services are not elective; they are emergency services or inpatient services over which patients have no control.
    • It only works where there is price and quality transparency. Often, hospital charges and quality information are not available to patients.
    • It only works when people have the wherewithal to navigate it. Patients with mental disabilities or low health literacy levels may not be able to use it and may end up with exorbitant out-of-pocket costs.
    • It only works when there is a competitive market. If there’s only one hospital in the area, people have little choice where to go.

    Opponents of reference pricing would like to see stronger government regulation of the health care market, the strategy of every other developed country. Essentially, do what Medicare does and negotiate prices for all medical and hospital services.

    Here’s more from Just Care:

     

     

  • One way to bring down the cost of drugs: Reference pricing

    One way to bring down the cost of drugs: Reference pricing

    Prescription drug prices remain a top policy issue for the majority of Americans. Many life-saving drugs are too expensive. And, that’s largely because Congress has given drug companies a range of rights and protections that allow them to set prices on many drugs people need. It’s time Congress stepped in to bring down the cost of drugs and allowed government drug-price negotiation.

    In the meantime, economist Austin Frakt, proposes we borrow a page from other countries and insurers adopt reference pricing as a way to bring down the cost of many drugs. It sounds easier than it is for some drugs, but it might be a smart first step for other drugs. It appears to be working for hospital prices, and it could also work for medical devices and different therapies.

    With reference pricing, drugs with the same or similar treatment effects are grouped together into a class. A class of drugs would all contain the same active agent. The health insurer then would pay one price for all the drugs in a class, the reference price. If an individual wants a different drug in the class, the insurer would cover the amount up to the reference price and the individual would pay the difference.

    The idea at its best is that drug companies will lower the price of drugs in a class closer to the reference price to increase their market share.  Insurers could choose among a number of ways to decide on the reference price. Some countries choose a reference price that is the lowest price of a drug in a class. Other countries choose the average price.

    Drug companies arguably would continue to innovate because they are rewarded for developing drugs in new therapeutic classes. Or, they would develop a lower-cost drug in an established therapeutic class to drive profits.

    To be clear, with reference pricing of drugs, it matters a lot how drugs are grouped. For example, statins could all be grouped together or they could be grouped along with other cholesterol drugs that might be far more costly, but also might be more effective. If all cholesterol drugs were grouped together for purposes of reference pricing, it could make the cost of the more effective drugs out of reach for many people who need them.

    Also, with reference pricing, diagnosis might be deemed irrelevant. However, a drug that is cost-effective at treating one type of cancer might be a waste of money to treat another type of cancer.  So, there’s a compelling case that cost-effectiveness based on diagnosis should be factored into the pricing.

    That said, all too often people need a high-cost drug because the low-cost drug in the same therapeutic class that works for most people does not work for them. With reference pricing, these individuals could be burdened with serious expenses.

    Without a doubt the better solution is for the U.S. to follow the lead of other wealthy nations and have the federal government negotiate one price with drug companies for any given drug. If that’s too complicated, or to minimize issues raised in the negotiation process, we could look at the prices other wealthy countries pay for these drugs and set our prices at their average, highest, or lowest price. Even if we chose to pay the highest prices for these drugs outside the U.S., we would be saving billions of dollars.

  • Driving hospital prices down through reference pricing

    Driving hospital prices down through reference pricing

    Until we have an all-payer system with uniform health care rates, we will have wildly varying and out-of-control hospital and doctor rates.  Some purchasers, however, are innovating to rein in or reduce some hospital and doctor rates on their own. The California Public Employees Retirement System, CalPERS is using “reference pricing” to force providers to compete on price and bring down health care costs.

    Through reference pricing, CalPERS sets a cap on what it will pay for a range of services, limiting its expenses and requiring individuals to pay the difference between its payments and what providers charge. Reference pricing relies on individuals to be more informed about the costs of the services they receive and to seek out providers with lower rates in order to limit their out-of-pocket costs.

    Supporters of reference pricing see it as a smart way to engage people in their health decisions. It also incents providers to bring down their rates if they want to attract more patients.

    Opponents of reference pricing believe it places an unfair burden on people who may have low health literacy levels or who may choose doctors and hospitals with lower rates and, in the process, receive lesser quality care. Rather than burdening people with these decisions, opponents would like to see stronger government regulation of the health care market, the strategy of every other developed country. (Medicare is more efficient than private insurance.)

    In a new paper for Health Affairs, Ann Boynton and James Robinson report that CalPERS is lowering costs and increasing value through reference pricing. They recognize that good quality data for comparing hospitals and doctors is limited at best, but they found that people receiving care through CalPERS’ reference pricing system had as good health care outcomes as others. At the same time, they appreciate the importance of incentivizing providers and insurers to bring down costs, with reference pricing complementing those incentives.

    Boynton and Robinson make clear that reference pricing only works for services that are “shoppable,” where the patient has the time and ability to choose a hospital or doctor based on price. CalPERS recognizes that reference pricing cannot work for emergency services–although you should choose your hospital emergency room carefully—or bundled services, where people are unable to make choices about their health care services. Nor can reference pricing work when people have to travel long distances to receive lower-cost care. And CalPERS makes exceptions and pays more for care in higher-priced facilities where medically justified.

    If you’re preparing for a trip to the hospital, click here to see what to bring.  And, before you or someone you love leaves the hospital, here are seven things you should do.